Mining JV Advances the Highest-Grade Undeveloped Silver Asset (of Size) in the World

Source: Streetwise Reports (4/26/18)

A Canadian silver mining company releases its 2017 financials and news on what is the highest-grade undeveloped asset in the world.

MAG's Juanicipio JV Project

MAG Silver Corp. (MAG:TSX; MAG:NYSE.American), a Canada-based silver mining company, released its 2017 financials late Q1 2018. In a recent report, the company says it has "cash and cash equivalents totaling US$160.4 million as at December 31, 2017." It plans to use this capital to advance the development of its Juanicipio Project in the state of Zacatecas, Mexico.

MAG Silver owns a 44% stake in its flagship project, Juanicipio, while its partner, Fresnillo, owns the remaining 56%. Located right in the Fresnillo Silver Trend in Mexico—the world's premier silver mining camp—the project is a 4,000-tonne-a-day mining operation with an initial mine life of 19 years.

According to the company's preliminary economic assessment (PEA) released in late 2017, the initial high-grade silver provides a less-than-two-year payback from the mine startup. Currently, the process plant's throughput rate is 1.4 million tonnes per year (4,000 per day). The life of mine payable production is 183 million ounces of silver and on a silver equivalent basis is 352 million payable ounces.

The 2017 PEA also shows an internal rate of return (IRR) at 64.5% and 44.5% (pre-tax and after tax). At a 5% discount, its pre-tax net present value (NPV) of US$1.86 billion is US$1.14 billion after taxes, according to a recent report released by MAG Silver.

George Paspalas, MAG Silver's president and CEO, commented in the company’s release dated March 27, 2018, "We saw the 2017 PEA strongly validate the enhanced project scope, size, and economics of the Juanicipio project. We look forward now to completing the feasibility study which will trigger the production decision and set us on the path forward with our partner Fresnillo. As we progress through 2018, the strategy to commence exploration on some of the greenfield targets on the Joint Venture ground should materialize."

Juanicipio: 2018 and Future Development

MAG Silver expects to complete the feasibility study and announce a production decision in Q2 2018. The feasibility study will only consider the economics of the indicated changes as defined by the NI 43-101. The company believes the study will be the driver to a more formal production decision. The company’s partner and operator, Fresnillo, plans to start production in the first half of 2020.

Michael Curlook, MAG Silver's vice president of investor relations and communicatoins, told Streetwise Reports, "When this mine opens, it has the potential to be one of the largest silver mines in the world. The Juanicipio project has higher-grade silver mineralization at the top. This means the project will have a high metal release early on, allowing us to payback the project in the early years. We are currently conducting infill drilling at Juanicipio to extend the mineralization and we are exploring other parts of the property.”

On drilling, Heiko Ihle, a H.C. Wainwright & Co. research analyst, stated in a March 28 report, "The planned 20,000 meter exploration drill program at MAG Silver Corp.'s Juanicipio continues to progress with four surface drill rigs in addition to one underground drill rig at site. We highlight that the firm aims to upgrade Inferred resources within the Deep Zone to the Indicated category and test new target areas."

Ihle also stated, "We continue to believe that exploration upside potential at the project exists, especially given the potential for extension of known trends into the joint venture property and the general existence of numerous regional target areas that the company has identified."

Tara Hassan, an analyst for Raymond James, wrote on March 27, "MAG Silver Corp. ended 2017 with a cash position largely in line with expectations." She added that, "the key takeaway from the financials is that the initial capital investment for Juanicipio will be incrementally higher than the figures presented in the PEA. While the higher capital costs, coupled with the reduced mine life, could result in less compelling economics than the November 2017 PEA, we reiterate our view that this study will not fully capture the potential of Juanicipio given the exclusion of inferred resources and the significant exploration potential remaining at the project."

"With the construction decision for Juanicipio expected in the coming months, we believe MAG is well positioned to attract a market re-rating as the company’s flagship Juanicipio project transitions to production," Hassan concluded.

Euro Pacific Capital analyst, Bhakti Pavani, wrote in her March 28 research report that "2017 ended on a positive note for MAG, as the Company not only announced a robust Preliminary Economic Assessment (PEA) on the Juanicipio project but also stocked up the treasury (by ~$48MM) with the completion of a private placement offering." Pavani believes "the updated PEA announced by the Company in November last year significantly improved Juanicipio project’s economics."

Stock Performance

At the time of publication, MAG Silver shares are priced at C$14.35 and US$11.16. The company has a market cap of C$1.21 billion.

Only 85 million shares are outstanding, so the company has been discerning when issuing equity, with the focus being to minimize shareholder dilution. The company believes that the exploration on Juanicipio could serve as a short and long-term catalyst for the stock.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Nikia Wade compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: MAG Silver. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from H.C. Wainwright & Co., MAG Silver Corp., Earnings Update, Mar. 28, 2018
I, Heiko F. Ihle, CFA and Matthew Barry, certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.

None of the research analysts or the research analyst’s household has a financial interest in the securities of MAG Silver Corp. (including, without limitation, any option, right, warrant, future, long or short position).

As of February 28, 2018, neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of MAG Silver Corp.

Neither the research analyst nor the Firm has any material conflict of interest in of which the research analyst knows or has reason to know at the time of publication of this research report.

The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.

The Firm or its affiliates did not receive compensation from MAG Silver Corp. for investment banking services within
twelve months before, but will seek compensation from the companies mentioned in this report for investment banking services
within three months following publication of the research report.

The Firm does not make a market in MAG Silver Corp. as of the date of this research report.

ANALYST INFORMATION
Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.

Disclosures from Euro Pacific Capital Inc., MAG Silver Corp, Company Update, Mar. 28, 2018Euro Pacific expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months. Euro Pacific or its officers, employees or affiliates may execute transactions in securities mentioned in this report that may not be consistent with the report's conclusions.

Regulation Analyst Certification ("Reg AC") — Bhakti Pavani. The views expressed in this report (which include the actual rating assigned to the company as well as the analytical substance and tone of the report) accurately reflect the personal views of the analyst(s) covering the subject securities. An analyst's sector is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average.

No part of the compensation of the analyst preparing this report was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such analyst in this report.